It is no secret that some companies generate revenue by selling user content to advertisers. However, those that do must clearly communicate their intentions to customers.

As Instagram learned, poor communication can result in a firestorm of bad publicity. The photo sharing site ignited a user revolt in late December when it changed its policy terms to indicate that it could sell users' photos to advertisers.

"To help us deliver interesting paid or sponsored content or promotions," stated Instagram's new terms of service (now retracted), "you agree that a business or other entity may pay us to display your username, likeness, photos (along with any associated metadata), and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you."

Although Instagram quickly backpedaled on its plans, the damage was done. The New York Post published stats from AppData, which measures usage among social and mobile apps, that showed a 25 percent drop in Instagram's active daily users between December 19, the day after the terms of service announcement had been made, and December 26, from 16.4 million to 12.4 million.

While it was eventually shown that the numbers were misleading, competitors reported an unusual rise in new users soon after the incident.

"Instagram had to have known that they were eventually going to have to look at a revenue model, and they had a really good opportunity to make this work in their benefit…but they only gave the user one choice, which was to delete their accounts," says Dennis Dayman, chief security officer at Eloqua, a marketing automation firm owned by Oracle.

In contrast, a few days after the Instagram debacle, the mobile check-in service Foursquare informed its users in an email and blog post that the company would be making changes to its privacy policy while including user options.

The company said it had created an easier-to-read version of the policy. The document lists the data Foursquare uses and what it does with people's check-ins. It informed users that it will show their full names on the app and would allow businesses to access expanded lists of users who have checked in at their establishments. It also allowed users to prevent businesses from seeing their check-ins.

Providing options is key to remaining on good terms with your customers, says Kathleen Brush, a global marketing and strategy consultant. "There are lots of services out there that have changed the terms of their free offerings for the noble purpose of staying in business," Bush notes, "but they have done it in a way that educated their users on why they were doing it and by explaining what their options were [free and fee] to continue to use their services."